Navigant Research Blog

A recent article in The New York Times made the claim that energy storage technology is “decades away from grid-wide use.” Reporter Jim Malewitz did not define “grid-wide,” so it is difficult to understand how this term is defined for the purposes of the story. We can examine that prediction, though, based on various measures.

One measure could be grid generation capacity of the capacity of installed energy storage. Given that on its own the U.S. grid has about 1,058 GW of total generation capacity, energy storage rightfully appears to be a drop in the bucket – to be precise, 0.07% of grid generation capacity excluding pumped storage and 2.2% including pumped storage. It’s worth noting, however, that the solar PV industry is considered to be successful and growing, and currently represents about 1.1% of total generation capacity in the United States. Moreover, the pipeline for energy storage is expanding rapidly. Approximately 13,000 MW of storage capacity is in the pipeline – 3,000 MW of which is advanced batteries, compressed air, flywheels, and power-to-gas.

A second measure could be the number of markets where storage is present and the variety of technologies in the market. Navigant Research is currently in the process of updating its Energy Storage Tracker, which tracks 30 energy storage technologies in over 600 projects – some of which include more than one storage system. Overall, 952 systems in 51 countries are tracked in the database.

Worldwide, there are 2,497 MW of deployed advanced energy storage projects – this excludes pumped storage, a mature technology that accounts for 124 GW installed. Asia Pacific continues to be the world leader in deployed capacity of energy storage, with 1,184 MW of deployed capacity, which represents 43% of global capacity. New pumped storage makes up nearly 60% of Asia Pacific’s capacity, followed by sodium-sulfur batteries, with 31% market share. The market share of advanced lithium ion batteries is growing quickly in Asia Pacific, with 74 MW installed currently.

Demand Flattens

Western Europe (762 MW deployed, 28% of global capacity) is primarily composed of power-to-gas, compressed air, new pumped storage, and molten salt technologies. North America (725 MW deployed, up from 566 MW in 3Q13) is more evenly divided among technologies, with compressed air, flywheel, lithium ion, thermal, and advanced lead-acid batteries composing a majority of the capacity. Clearly, a number of markets and technologies are being deployed across grids globally.

One other measure could be the growth of storage relative to a traditional industry. In 2007, 28 MW of advanced energy storage were installed. In the subsequent 6 years, 1,300 MW have been installed. More specifically, installed energy storage grew 28% between 3Q13 and 2Q14. In contrast, electricity sales have decreased over the past several years in the United States, and the U.S. Energy Information Administration predicts that electric demand growth will average less than 1% per year between 2012 and 2040.

Although energy storage is unlikely to revolutionize the global grid system in the near term, it will certainly begin to scale up rapidly in the next 3 to 5 years. Perhaps then it will be closer to grid-wide.

Germany’s energy policies have promoted strong growth for the country’s renewables industry and have served as guidelines for countries like the United States, Australia, and Canada in adopting similar laws. They have not, however, benefited German utilities.

Power generators in Germany are struggling as the combination of renewables and other Energiewende policies continue to shift the economics of the country’s power market. The result has been frightening drops in per-unit wholesale electricity prices, the proliferation of low-cost/high CO2-emitting generation resources, and desperate calls from utilities for policy reform to preserve capacity markets that will provide revenue stability.

Germany allows renewables to take priority on the grid. Because its energy market is deregulated, compensation for energy resources is set by supply and demand dynamics and marginal costs per unit. As a result, renewables flood the grid when they are available, which is mostly during daytime peak periods (when prices used to be the highest). But because the marginal cost per unit of renewable electricity is essentially zero, even when fossil fuel-powered resources are utilized, they are compensated at a much lower price than they have been in the past. That’s bad news for German utilities (which are surprisingly underinvested in renewables), as they have traditionally made most of their income by generating electricity. E.ON reported revenue losses of 14% compared to 2012, while RWE reported a loss for the first time in 50 years.

The Brown Stuff

One of the most noticeable consequences of this is the growth in coal consumption. Due to the intermittency of renewables, utilities are required to ensure sufficient backup power at all times. Since they are not guaranteed the ability to actually sell these reserves – and face low marginal profits when they do – they choose the most inexpensive generating option – usually coal. Currently, lignite (brown coal) provides about 25% of Germany’s energy supply, a figure that, according to the U.S. Energy Information Administration, is growing steadily year-over-year. This is unfortunate because it is the dirtiest fuel source in terms of CO2 emissions. Furthermore, plants take upwards of 6 to 8 hours to ramp up, which means that it is more cost-effective to keep them running at all times. But utilities claim that they must increase their use of lignite in order to maintain financial stability.

So what’s the answer? After so much push for renewables and dedication to reforming the energy industry in Germany, it doesn’t make sense for Chancellor Angela Merkel and German regulators to return to the status quo ante. Grasping the futility of seeking to reverse the Energiewende, utilities have proposed a number of market reforms. In particular, following France, there has been an increase in lobbying for the establishment of capacity markets that would guarantee utilities a source of income regardless of whether they actually sold their resources.

High Anxiety

Proponents argue that capacity markets would enable utilities to not only use cleaner fossil fuel sources, but also increase their investments in efficiency-related grid projects. And this makes sense; the Energiewende has proposed grid investments to decrease overall transmission and distribution losses and extend the reach of renewable resources (also promoting energy efficiency). In addition, the extension of demand response technologies (something that could also proliferate if curtailment is allowed to be sold as capacity) could ease some of the problems surrounding intermittency and high CO2 emissions from spinning reserves.

With anxiety rising among both utilities and regulators as the energy business in Germany becomes more and more disparate, it seems important to take a close look at establishing market mechanisms that simultaneously promote renewables and allow utilities and grid operators to maintain financial and operating stability while developing new revenue streams based on energy efficiency.

The high-voltage transmission system (HVTS) landscape can only be described as vast and evolving, as the forces of modernization, urbanization, and industrial expansion are transforming the power grids in Asia Pacific, Middle East, Africa, and Latin America. In my forthcoming report, High-Voltage Transmission Systems, I explain why each of these regions represents a tremendous opportunity for the seven major HVTS technologies and why the market is expected to grow strongly. These HVTS technologies include:

High-voltage direct current (HVDC) systems

High-voltage alternating current (HVAC) systems

Submarine and superconducting cables

Flexible AC transmission system (FACTS) solutions

Asset management and condition monitoring (AMCM) systems

Supervisory control and data acquisition (SCADA) systems

Substation automation (SA) systems

Both Europe and North America are clearly more mature markets. Aging infrastructure and the adoption of utility-scale wind and solar generation will drive the reconfiguration of the HVTS network in those regions, likely creating many new opportunities.

The HVTS market has a history of epic mergers, such as Alstom and Schneider Electric acquiring parts of Areva and General Electric’s (GE’s) takeover of Alstom, that point to a shifting landscape of HVTS players. From a technological standpoint, we are seeing the beginning of a new era where the Internet of Things (IoT) hits the HVTS market full force with inexpensive, easy-to-install wireless and remote sensors and cloud-based computing resources that use complex analytics and machine-learning algorithms to manage all aspects of the HVTS. Indeed, the HVTS roadmap will be an interesting and profitable journey over the next decade and beyond.

SolarCity, the rooftop installer of solar panels that has revolutionized the photovoltaic industry through financial engineering, announced this week that it has purchased startup solar cell manufacturer Silevo for $200 million in stock. After the announcement was made, SolarCity’s stock price increased enough to make the acquisition almost costless for SolarCity and its shareholders.

That doesn’t mean that the company gets free money for nothing, though. In order to make the Silevo acquisition worthwhile, SolarCity has to actually succeed in building a factory and start making panels. That will cost billions of dollars, as well as expose the installation company to all the risks that come along with becoming a manufacturer.

Or will it? SolarCity’s task is to succeed where Solyndra failed. Ironically, Silevo’s value to SolarCity might have been about the same program that became a political whipping boy in the wake of Solyndra’s failure: the federal loan guarantee program.

Same Plan, Different Outcome

Loan guarantees allow companies to borrow money for high risk projects because the federal government will pay back borrowers for a big chunk of the lent money even if the enterprise fails. Solyndra famously built a brand new manufacturing facility with federal loan guarantees and then proceeded to declare bankruptcy shortly thereafter, leaving the federal government with the bill. SolarCity might have the same game plan for Silevo (without, you know, the failure part).

Building a factory that can build a gigawatt’s worth of photovoltaic panels is a multi-billion dollar endeavor. Even with its newfound high-flying stock price, SolarCity’s resources will be stretched in trying to pay for that with cash. It will also find it difficult to find investors who are willing to lend that much for factory that makes an untested technology.

Enter the Department of Energy. Earlier this year, it re-launched its loan guarantee program for new projects that offer to bring jobs to the U.S. Silevo had already raised more than $225 million in New York state incentives for the construction of its facility. Now you can expect that SolarCity will be applying for federal loan guarantees in order to get the financing it needs to reach its goal of becoming a manufacturer.

Seller and Buyer

If a loan guarantee is granted, does this mean that after all of the heartache of the Solyndra affair that the Department of Energy is backing another loser? In a word, no. The primary difference between SolarCity and Solyndra (and there are many) is that the former is now a company that is making panels for itself. Solyndra simply couldn’t find buyers for its oddly shaped systems, which didn’t conform to the rest of the photovoltaic industry’s form factor standards. SolarCity doesn’t need to find a buyer because it is buying the panels that it makes. In other words, it’s a captive market for its own products.

Silevo’s fundamental technology advantage is that it promises to make higher-efficiency panels at a lower cost than other manufacturers. That would be nice to achieve, but it’s not even necessary. SolarCity’s primary goal is to make cheap panels for itself so it can reduce overall costs for its installation projects. Even if the New York factory ends up making plain old crystalline cells like those being mass produced in China today, SolarCity will win. Its only real challenge is to make them cheaply and efficiently.